Quarterly results as per 30 September 2016

Real estate portfolio

At the end of September 2016, the real estate portfolio included 161 office and commercial properties as well as five development sites and five individual projects. The carrying value of the total portfolio stood at CHF 6.884 billion (end of 2015: CHF 6.724 billion). In June 2016, the investment property located at Avenue de Beauregard 1 in Fribourg was sold for CHF 12.7 million. In July 2016, an office and commercial property located at Hardturmstrasse 101, 103, 105 / Förrlibuckstrasse 30 in Zurich was purchased for CHF 145 million.

The current site developments and conversion projects progressed as planned. The sale of freehold apartments at the “Salmenpark” project in Rheinfelden runs successfully. The first stage of construction with an investment total of approximately CHF 180 million will be completed by the end of 2016. The revised building application for stage two with an investment total of approximately CHF 70 million will presumably be submitted by the end of 2016. This stage includes 100 residential units for sale.

The property located at Rue du Marché 40 in Geneva is being renovated comprehensively. Approximately CHF 15 million will be invested until 2018.

The two buildings located at Förrlibuckstrasse 178/180 and Hardturmstrasse 181, 183, 185 (project “Orion”) in Zurich West will be demolished and replaced by a new one. The building application for this office and commercial property will presumably be submitted at the end of 2016. Construction is scheduled for 2018 to 2020. The investment total will amount to approximately CHF 120 million.

On the “Paradiso” site in Lugano, construction start for a residential building with 65 freehold apartments as well as offices and retail space is scheduled for Q1 2017. From today’s perspective, the investment total will amount to approximately CHF 65 million. All units will be sold after their completion.

On 28 October 2016, within the time stipulated, PSP Swiss Property, respectively PSP Properties AG ("Properties"), submitted its statement of defence regarding the complaint filed by Steiner AG against Properties and Löwenbräu-Kunst AG ("LKAG") with the Commercial Court of the Canton of Zurich on 24 February 2016, and demanded that the action be dismissed in full. In its action in connection with the Löwenbräu construction project in Zurich West, Steiner AG asserted claims totalling CHF 58.5 million, whereof CHF 18.3 million relate to LKAG, respectively the "Kunstteil" of LKAG, which, however, are also asserted against Properties in the event that the claim against LKAG should be dismissed. PSP Swiss Property disputes the claims of Steiner AG as unfounded and unsubstantiated. No provisions have been built for this litigation by PSP Swiss Property.

Vacancy rate

At the end of September 2016, the vacancy rate stood at 9.4% (end of June 2016: 9.1%). This figure excluded the properties on Förrlibuckstrasse 178/180 / Hardturmstrasse 181, 183, 185 (project “Orion”) in Zurich West as well as the property at Rue du Marché 40 in Geneva, which we reclassified as “development properties” at the end of September 2016.

1.1 percentage points of these 9.4% were due to ongoing renovation work on various properties. The properties in Zurich West and Wallisellen (carrying value CHF 0.7 billion) contributed 1.8 percentage points to the overall vacancy rate. The remaining properties with a carrying value of CHF 5.4 billion (i.e. the total investment portfolio excluding the objects under renovation as well as those in Zurich West and Wallisellen) made up 6.5 percentage points.

Quarterly results Q1-Q3 2016

During the reporting period, net income (excluding changes in fair value) reached CHF 132.0 million (previous year’s period: CHF 122.6 million). The main reasons for this increase were higher rental income, which was up by CHF 1.4 million, and income of CHF 10.9 million from the sale of 71 freehold apartments at the “Salmenpark” project in Rheinfelden and three condominiums at the “Black” tower on the Löwenbräu site in Zurich (previous year’s period: CHF 2.2 million). Additionally, income from capitalised own services and VAT recovery overall was up by CHF 1.7 million to CHF 5.4 million (previous year’s period: CHF 3.6 million). Earnings per share (excluding changes in fair value) amounted to CHF 2.88 (previous year’s period: CHF 2.67).

Net income (including changes in fair value) was CHF 102.8 million (previous year’s period: CHF 132.4 million). The decline was caused by the regular semi-annual revaluation of the properties as per mid-year 2016, which resulted in an overall depreciation of CHF 31.8 million. In addition, there was a negative market value adjustment of CHF 6.7 million as at the end of September, resulting from the initial valuation of the newly purchased property at Hardturmstrasse 101, 103, 105 / Förrlibuckstrasse 30 in Zurich. Earnings per share (including changes in fair value) amounted to CHF 2.24 (previous year’s period: CHF 2.89).

Strong capital structure

With total equity of CHF 3.825 billion (end of 2015: CHF 3.870 billion) – corresponding to an equity ratio of 55.1% (end of 2015: 57.0%) – PSP Swiss Property had a strong capital base at the end of September 2016. Interest-bearing debt amounted to CHF 2.178 billion, corresponding to 31.4% of total assets (end of 2015: CHF 1.969 billion respectively 29.0%).

At the end of September 2016, the passing average interest rate was 1.33% (end of 2015: 1.53%). The average fixed-interest period was 4.4 years (end of 2015: 3.4 years).

No major committed bank loans will be due until 2019. Currently, PSP Swiss Property has unused committed credit lines totalling CHF 660 million.

PSP Swiss Property is rated by two international rating agencies. In March 2016, Fitch confirmed the Senior Unsecured Rating A- (outlook stable). On 10 November 2106, Moody’s assigned an A3 Issuer Rating (outlook stable).

Market environment

PSP Swiss Property assumes that the property market will remain a challenge. The rental of office and other commercial space, in particular, will not be easy.

In Switzerland overall, the supply of office space is greater than demand in many places. However, new constructions are likely to decline slightly overall – except in certain hot spots such as Zurich North. In the economically strong Zurich city centre there is moderate pressure on rents. Vacancies are being absorbed slightly better than in the past. As a consequence, supplied space is diminishing a bit.

Rents remain under pressure in the retail sector due to the exchange-rate-induced shopping tourism abroad and the growing online shopping. This is not likely to change any time soon. In this market environment, central locations (“high street retail”) prove to be particularly robust.

Outlook 2016

Due to the continuing low interest rates, demand for well-located commercial properties remains strong and the acquisition market highly competitive. When evaluating possible acquisition targets, PSP Swiss Property continues to pursue its conservative acquisition strategy.

Focus will be kept on the letting activities, the renovation and modernisation of selected properties as well as the further development of our sites and projects.

For 2016, PSP Swiss Property still expects an ebitda (excluding changes in fair value) in excess of CHF 240 million (2015: CHF 232.7 million). With regard to the vacancies at year-end 2016, an improved vacancy rate of around 9.5% is now expected (so far: around 10%; end of September 2016: 9.4%).

Key figures